The interest rate futures markets attempted to rally as a result of oversold market conditions giving the market a brether as many Fed members spoke indicating that a future rate hike could be in store. Poole spoke today indicating that the primary goal of the Fed is to keep inflation in check. They are closely monitoring the core inflation rate and prefer that it stay at or below 1 ½%. Anything higher would likely encourage a rate hike. The Fed will also be keeping a close eye on the GDP number coming out on February 28th. A strong GDP number would likely encourage a rate hike sooner rather than later. According to Poole, an annual GDP growth of 3% of 2007 is expected. Other Fed members also spoke today unanimously indicating that the Fed will likely raise rates.
The most important and most talked about report this week included the productivity. The US Productivity increased by 3% versus 1.7% as expected and .2% last month. The strong productivity is quite impressive considering that the 2006 US Productivity was only 2.1%. According to Gartman, as output and productivity expands, businesses tend to decrease hiring levels for fear that the productivity cannot be sustained long term. Therefore, current skilled employees tend to work longer hours to get the job done.
The market is looking forward to the upcoming housing starts numbers as well as the new home and existing home sales numbers. Many reports keep surfacing regarding the health of the housing sector. Sales appear to have been picking up over the past couple of months. However, there have also been many reports that the foreclosure rates have also gone up. The national foreclosure rate is approximately 1.1% with the highest foreclosure rate in Ohio of 3.3%.
The near term trend has shifted from a clearly down trending market to a sideways market over the past week. A potential rate hike is likely already priced into the market and may start trading in a sideways channel until the Fed actually makes a move.
Support: 106-28.0; 106-06.0
Resistance: 107-12.5
Chart Copyright 2007 CQG, Inc.
Financial Reports for the week of February 12th - February 16th:
Tuesday: US Trade Balance - 7:30 am CST
Wednesday: Business Inventories - 7:30 am CST
Retail Sales - 7:30 am CST
API/EIA Energy Stocks - 9:30 am CST
Thursday: Weekly Jobless Claims - 7:30 am CST
Capacity Utilization - 8:15 am CST
Industrial Production - 8:15 am CST
EIA Gas Storage - 9:30 am CST
Friday: Housing Starts - 7:30 am CST
PPI - 7:30 am CST
